The VAT treatment of certain gift vouchers will change with effect from 1 January 2019.

At present, the general rule is that the issue of a voucher to a consumer is not subject to VAT in Ireland. VAT arises when the voucher is redeemed by the consumer to acquire goods or services. There are exceptions to this general rule, for example, VAT arises where vouchers are issued to a business which acquires them for the purpose of resale and on the subsequent onward sale of the vouchers.

In 2016 the EU Council adopted new measures as part of an attempt to harmonise  the VAT treatment of vouchers across the EU. The new rules differentiate between two types of vouchers:  “single-purpose” vouchers and “multi-purpose” vouchers.

Single-Purpose Voucher

A “single-purpose voucher” is a voucher where the place of supply of the goods or services to which the voucher relates and the VAT due on those goods or services are known when the voucher is issued. Any single-purpose voucher issued after 31 December 2018 will be subject to VAT at the point of issue.

Multi-Purpose Voucher

A “multi-purpose voucher” is any voucher other than a single-purpose voucher, i.e. the goods or services that may be purchased with the voucher may have different VAT rates, and / or may be purchased from different suppliers. No VAT will continue to be charged on the issuance of these vouchers post 31 December 2018. Instead VAT will be charged when the voucher is presented for redemption.

The change in VAT treatment only affects vouchers which can be used for redemption against goods or services. Instruments entitling the holder to a discount should not be affected by the new rules. Furthermore, the new rules should not result in changes to the VAT treatment of transport tickets, admission tickets to cinemas and museums, postage etc.

Free Gift Coupons

The new rules will not impact the VAT treatment of “free gift coupons”. Take the following example:

Say a coffee shop operates a scheme whereby customers get a coupon with each purchase over €10 and the customer can get a free toy once he/ she accumulates 10 coupons. As no payment passes between the customer and the coffee shop for the toy (the consideration was paid for the food / drink etc) this is effectively a gift by the coffee shop which means that they must account for VAT on the cost of the toy. In practice, this is usually involves the coffee shop simply not claiming the input credit when purchasing the toys. However, there is a body of EU cases involving loyalty schemes, free gifts etc which emphasise the importance of monitoring developments in this area and understanding that there are exceptions to the general rule.

Implications

These changes will impact many types of businesses, particularly retailers, online businesses and software companies. Careful consideration must be given to how the new rules will be implemented  as well as the wider commercial impact, including potential amendments to contracts and pricing schedules.